HM Treasury permanent secretary James Bowler has rebuked the suggestion that civil servants in the department broke the law in failing to disclose £9.5bn of financial pressures ahead of the Spring Budget in March.
Office for Budget Responsibility analysis published alongside last week’s Budget found that £9.5bn of unfunded commitments were known in February and not disclosed to the OBR by then-chancellor Jeremy Hunt ahead of the budget. This led to the pressures rising to £16.3bn in by the time of the Spring Budget and to £21.9bn by July, when Labour came to power.
The OBR was probed several times on Tuesday on whether the Treasury broke the law in its preparations for Hunt’s March Budget.
OBR chair Richard Hughes told MPs that HMT officials had not disclosed these pressures as part of the usual budget preparation process “which under the law and under the act they should have done”.
Addressing this at a Treasury Committee session yesterday, Bowler said: “There was a question about whether we acted within the law in this thing and it’s important for me to point out that we’re clear that the Treasury did act within the law.”
He added: “Indeed, it is because the law is more about what the OBR have the right to ask for rather than what is provided to them of our own initiative that we’ve needed to strengthen the framework.”
The Treasury has agreed to a set of 10 recommendations made by the OBR in its review of the March forecast. These aim to improve transparency between the Treasury and the OBR, strengthen the OBR’s ability to interrogate the government’s spending plans, and increase the kinds of information that HMT must provide.
Probed further on whether Treasury civil servants broke the law during Tuesday's session with MPs, Hughes said: “It’s a question for the Treasury to ask: Why was information available within the Treasury and not provided to us? That may have been a misunderstanding of how the law ought to be interpreted. There’s no doubt, in our minds, that had that information been provided, we would have had materially different judgment [about the March Budget].”
Hughes also said that he believes “every public servant in this country does their utmost to try to obey the law and respect both its spirit and its letter”.
He said the Treasury and OBR had a “high-trust relationship” with a system of expenditure control in place which was “well managed” but that “system very clearly broke down” .
“I think there was a systemic failure in putting together the last forecast and potentially a misunderstanding of expectations on both sides about what needed to be provided,” he added.
Bowler told MPs that the way the Treasury and OBR had worked together in preparing for budgets had functioned well up until 2024-25.
Asked what changed in 2024-25, Bowler said it was “the size of the pressures” and the lack of offsetting by ministers to reduce those pressures, as well as an uncommon amount of overspends compared to a historic norm of more underspends.
He said the system it had used to prepare budgets had a built-in assumption that if departments had in-year pressures, these would be offset either by ministers taking decisions to reduce spending or through there being underspends, but that neither of these things happened in the final months of the Rishi Sunak administration.
“Those pressures grew and the offsetting savings didn’t follow and that is why we have changed our framework,” he said.
Bowler said the lack of a spending review since 2021 was the underlying reason the issues with the framework were not noticed earlier. “A really important improvement in our fiscal framework is we will now have a spending reviews every two years so that last year always gets reset to try to avoid this idea of things getting unstuck,” he said.